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India GDP Forecast Revised Upwards

June 2, 2009

The release of 4QFY09 GDP data which pegged growth at 5.8% resulted in the government’s advance GDP estimates being revised from 7.1% to 6.7%. Given that data in the last few months was weak (contraction in industry and exports), a revision was on the cards but growth would have been weaker were it not for higher govt spending.

Key things to note are,
A slump in private consumption to 2.9% while public consumption was up 20% – the highest since the 1960’s – largely due to the pay commission..
Investment growth slowing down from double-digit growth to 8.3%. GDP by activity was led by services up 9.7% (spike in govt spending reflected in community services) while industry and agriculture were up 3.9% and 1.6% respectively.

On the back of the election results and incorporating the CSO’s new numbers for FY09, Citigroup is revising our FY10 GDP from 5.5% to 6.8% and FY11 GDP from 6.6% to 7.8%. The upward revision is primarily due to higher investment growth, raised from 4% to 9% in FY10 and from 5.4% to 11.3% in FY11.

A stable government, policy certainty and access to capital market funding bode well for a pick-up in the investment cycle.

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